522. Whether deduction under the section is allowed from income of registered firms and only resultant net income is distributed for assessment in partners’ cases

1. The Allahabad High Court have held in their judgment dated 24-3-1971 in the case of CIT v. Bharat Bhandar [1974] 94 ITR 315 that rebate under sections 84 and 88 should be allowed to a registered firm as well as its partners.  The Board has accepted the decision and has decided that the law as laid down by the Allahabad High Court should be applied to all cases covered by sections 15B/ 15C of the 1922 Act, and by the corresponding sections 88/84 of the 1961 Act, before their deletion by the Finance (No. 2) Act, 1967 with effect from April 1, 1968.  Instructions apprising the departmental officers of this legal position had been issued on July 19, 1971.

2. Sections 84 and 88 of the 1961 Act were deleted by the Finance (No. 2) Act, 1967 with effect from April 1, 1968 and substituted by sections 80G and 80J replacing the system of tax rebate by a system of deduction in assessable income.  After April 1, 1968, therefore, under the aforesaid new provisions, the deduction as prescribed has to be allowed from the income of registered firms and only the resultant net income distributed for assessment in the partners’ cases.

Circular : No. 123 [F. No. 279/112/73-ITJ], dated 31-10-1973.

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October 2020